Tuesday, August 26, 2014

The IMO's Marpol Annex VI deadlines are rapidly
approaching for ships operating in Emission Control Areas. The deadlines
address the next phases of mandated drastic reductions in nitrogen and sulfur
oxides, and shipowners are faced with three basic choices to bring their
vessels into compliance.

The two most expedient and economical methods available are
either switching to the use of low sulfur fuel or installing scrubbers and
continuing to use current fuel. Those options appear attractive at first
glance, but each has its drawbacks.

Compliant fuel costs 40 percent more than current fuel, and
will probably be more in 2015.

Installing exhaust gas scrubbers uses current fuel with
added costs, plus there are significant maintenance concerns as well as the
problem of how to dispose the contaminated seawater generated by the process.

The third option is to switch to the use of liquefied
natural gas – LNG – with its potentially lower fuel costs, and the fact that it
meets current and future emissions requirements. The drawbacks are cost and
lack of infrastructure at this time.

As far as one major US container and ro/ro ship owner and
operator is concerned, the age of LNG has begun – and the shipping industry's
shift from bunker fuel and diesel to liquefied natural gas is "as major as
the shift from wind to steam," said Anthony Chiarello, the president and
CEO of TOTE, Inc.

TOTE is a trailblazer in the leap to LNG – the company is
the first US ship owner to convert its fleet to LNG. TOTE is building the
world's first LNG-powered container ships for the company's Florida to Puerto
Rico liner service, as well as performing diesel-to-LNG dual-fuel engine
transplants on subsidiary Totem Ocean's two Orca class ro/ro trailerships that
make weekly runs between Tacoma and Anchorage.

The significance of TOTE's making the leap to LNG – which
provides a needed jump-start to widespread adoption of the gas as marine fuel –
was recognized by the White House in May when Anthony Chiarello was named one
of 2014's eleven "Transportation Ladders of Opportunity Champions of
Change".

TOTE's decision to switch its fleet to LNG was not made
overnight.

"We started having discussions in 2010 about how to
fulfill the ECA requirements for the reduction of sulfur and nitrogen
oxides," said Chiarello. "Our Totem Ocean ships never leave the ECA
zone, they are never more than 200 miles from the West Coast.

"We put together a team from Totem Ocean that spent
more than two years traveling the globe to investigate our options. Our Orca
class ships were built in 2003, they were less than ten years old at the time,
and powered by MAN diesel-electrics. MAN told us they did not make a conversion
kit for LNG for those engines.

"We look at our ships as 40 year investments," he
said. "We decided to install new engines in the Orcas instead of
converting. We requested bids for new LNG dual-fuel engines from different
manufacturers, including MAN. Wartsila was the winner."

TOTE's decision to convert the Orcas also paved the way for
its decision to use LNG on the two new containerships the company was planning
to build for its Florida to Puerto Rico weekly liner service. The fact that at
least 40 percent of the Puerto Rico route passes through the North American
Caribbean ECA underlined LNG's environmental benefits.

"Our ships in the Puerto Rico trade were of an age that
we had to do something, they were 35 to 40 years old," said Chiarello.
"What is interesting is that MAN won the contract to supply those two new
vessels."

The commitment to use LNG as a vessel's primary fuel has
been perceived to increase supply and safety risks.

"We are always looking to minimize risk as much as
possible," said Chiarello. "The replacement of the Orca class
vessels' engines will have less risk than conversion.

"The use of LNG as a marine fuel is not new. There are
LNG fueled ferries in Scandinavia, and LNG carriers that have been using
dual-fuel engines with the ability to burn off gas from their cargo have been
around for quite some time. What we are doing is taking a known and tested technology
from one platform and transferring it to another."

TOTE's decision to go with LNG powered new builds and the
expensive change to LNG dual-fuel on the Orcas has triggered a chain reaction
of interest and commitment from other critical potential players in the LNG
revolution.

"Change is often fueled by challenge," said
Chiarello. "The challenges posed to our company by the North American
Emissions Control Area quickly became an opportunity to lead the industry to
cleaner fuels beyond diesel. We've been bullish in our statements that we
believe all new ships built for the US domestic trades will burn LNG as fuel.

"The response from other maritime companies has been
nothing short of a tidal shift. Orders for LNG ship construction accelerated
after we announced plans to convert our ships that serve Alaska and build new
ships, the first container ships in the world to be powered by LNG, for Puerto
Rico."

The fact that TOTE's ships are engaged in regular liner
service between US ports plays an important part in reducing the risk of fuel
availability.

"Our biggest area of uncertainty was the LNG supply
side," said Chiarello. "As a Jones Act domestic carrier, we're
uniquely positioned to create real change in the supply conundrum –
availability of fuel is a big hurdle for most transportation sectors to change
over to clean burning natural gas."

The regular service routes of TOTE and Totem Ocean create
enough of a steady demand to entice fuel partners to build liquefaction plants
in their ports of call – thus making LNG supply available to others in those
markets. Supply in Jacksonville, Florida, and Tacoma, Washington, will serve
the Southeast and Pacific Northwest with natural gas that can be used for
ships, trucks, and rail.

"As more maritime and transportation companies move to
natural gas, the benefits will grow exponentially," said Chiarello.
"The impetus was improving air quality, but we also know that moving to a
domestically sourced fuel will increase reliability for our critical supply
chain and the environmental and operational safety record of LNG is
unmatched."

This is not the first time that TOTE has decided to invest
more than the minimum required and for the long term. Totem Ocean's two
839-foot Orca class ships, the M/V Midnight Sun and North
Star, were specifically built as trailerships to service the Alaska
trade. The ships were designed and built to withstand the rough winter seas of
the passage as well as designed to optimize the loading and unloading of the
600 tractor-pulled trailers to meet eight-hour port turnaround times on each
end.

TOTE's two LNG containerships are currently under
construction in General Dynamics NASSCO's San Diego shipyard and will be ready
in early 2016. The engine transplants on the two Orca class ships will take
place in the successive winters of 2015 and 2016 to minimize any disruption of
service – the shipyard has not yet been announced.

"Change of this magnitude requires strong support from
partners and regulatory agencies," said Chiarello. "The EPA, helping
to facilitate engine conversions; the US Coast Guard, working to create new
regulations; Wärtsilä, designing new LNG engines for our ships; General
Dynamics NASSCO, building a ship that's never been built before; partners
creating fuel infrastructure; and our parent company Saltchuk, which is both
able and willing to invest to 'do the right thing'."

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EDITORIAL

Pacific Maritime Magazine California Contributing Editor Karen Robes Meeks spent several years covering the ports of Los Angeles and Long Beach, California for the Long Beach Press-Telegram and our sister publication Fishermen’s News.